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Declining union power would not be an
overwhelming cause for concern if not for rising wage inequality and the
loss of worker voice

Elevator pitch

The micro- and macroeconomic effects of the
declining power of trade unions have been hotly debated by economists and
policymakers, although the empirical evidence does little to suggest that
the impact of union decline on economic aggregates and firm performance is
an overwhelming cause for concern. That said, the association of declining
union power with rising earnings inequality and the loss of an important
source of dialogue between workers and their firms have proven more
worrisome if no less contentious. Causality issues dog the former
association and while the diminution in representative voice seems
indisputable any depiction of the non-union workplace as an authoritarian
“bleak house” is more caricature than reality.

Key findings

Pros

Trade unions under certain bargaining structures can have
favorable macro consequences by being less aggressive in their
wage bargaining.

Where there are benefits to a long-term relationship between
the employer and the worker, trade unions can facilitate
contracting.

Trade unions have historically reduced wage
inequality.

Cons

Trade union monopoly power is bad, and its exercise may lead to
a misallocation of resources.

The
basis of pro-productive union effects is vague while there exist
alternative, non-union voice mechanisms.

Governance procedures are not exclusive to union regimes and by
design may lower rent-seeking behavior injurious to firm
performance.

Unions may no longer reduce wage inequality or support
redistributive policies.

Author's main message

To the extent that unions have been found to have
negative effects on net, their decline might be deemed no cause for concern.
However, even in these circumstances, “on net” is not a sufficient guide for
policy. Rather than a hands-off approach, the general goal should be to
stimulate value-enhancing choices by firms and workers, while limiting the
downside of rent-seeking.